Managed Care in Healthcare


Throughout the twentieth century, U.S.A. experienced many changes in the health care field. The plan-based structure became a more popular option for employers and providers, creating many organizations that provided healthcare of diverse quality and prices. This led to creating managed care, the structure that lowered the provider’s service price, and controlled its quality. The paper aims to summarize the history of managed care, discuss its different organizations, their benefits, disadvantages, doctor’s incentives, and provide recommendations for potential patients.

Managed Care History

At the beginning of the twentieth century, medical workers expressed a desire to create prepaid structures. This would make a system where medical facilities would guarantee a stable income while simultaneously providing healthcare for people who participated in funding the organization. A concept of prepaid medical services would undergo a large number of iterations that would attempt to improve the existing formula. Blues (Blue Cross and Blue Shield) created a plan for prepaid healthcare for working-class people, intending to develop cooperation between physicians and a specific company (Fox & Kongstvedt, 2015). The similar organization type is called HMO, the difference being the private physicians and higher service quality.

In the 1980s, HMO-like managed care organizations, such as HMO, PPO, and POS, soon started gaining traction in the medical field. The goal of such structure was to provide patients with quality services at low prices. Insurances, different cover plans, and payment periods are all attributed to the high demand for managed care. Unfortunately, at the end of the twentieth century, many issues with managed care arose. People, who were put in an HMO program by their employers, could not visit an out-of-program doctor, and the increasing number of clients led to these systems being “cold and heartless and the errors, and delays in payment as intentional” (Fox & Kongstvedt, 2015, p. 21). Gaining a bad reputation made managed care organizations adjust their plans, leading to the coverage cost rise, which resulted in HMO and others losing their share on the market.

The creation of insurance programs, such as HMO, displayed the negative sides of generalized healthcare. With the rising number of clients, programs fail to provide proper evaluation and consequent treatment. HMOs’ crash has also shed light on a prominent healthcare issue: “providers seeking to protect their incomes are better organized than are patients” (Fox & Kongstvedt, 2015, p. 34). The lack of quality insurance created an aura of unattractiveness in insurance agencies, and the late raising price proved to the public that the organization is desperate.

The Different Types of Managed Care Organizations

To properly analyze managed care, it is essential to define four main abbreviations: MCO, HMO, PPO, and POS. These plans aimed to fulfill a goal of quality medical services and insurance, but all of them had a distinguishing quality. Some cover particular doctors, others allow for lowering the cost of the treatment and attending out-of-program doctors. All plans are a part of MCO – a managed care organization.

The main goal of the Health Maintenance Organization is to provide prepaid healthcare. It is also beneficial for providers because this plan “vertically integrate health care providers and pay them at a competitive price” (Baranes & Bardey, 2015, p. 1). HMO became one of the first insurance programs in the U.S.A., and, for a long time, was providing quality insurance and even helped to improve the overall treatment process. At one point, client was able to select two types of insurance, securing an even greater area of possible health issues. One of the main arguments for HMOs was their intent to increase the quality of treatment and decrease its costliness.

Preferred Provider Organizations (PPOs) are groups of providers that give people covered with this plan a discount while attending a particular doctor or hospital. This plan has been a prevalent option for clients because it not only provided them with a discount but also, unlike HMOs, allowed to attend out-of-program providers. In the 1980s, PPO became a trending insurance plan in the U.S., and the reason is apparent. One of the crucial reasons for the future downfall of the MCOs systems was their lack of care for the clients. PPO was a complete opposite, trying to find the best deal for the client and “agreed to certain cost-control measures,” which meant that the doctor could find a hospitalizations option that would satisfy the client, not the company (Fox & Kongstvedt, 2015, p. 12). This program even allowed patients to reevaluate the assessment with another doctor’s help, and the insurance would cover it.

The point of Service plan was introduced at the same time as PPO and provided similar to HMO services. Insurance covered any treatment with the PCP’s participation and allowed to cover the expenses of out-of-program providers. That is where the program’s disadvantage starts to appear because when attending another doctor, clients were “subject to higher cost sharing if they did” (Fox & Kongstvedt, 2015, p. 13). This type of insurance was an exciting choice for a moment, but its popularity decreased rapidly due to the high prices.

Negative and Positive Aspects of Managed Care

The first assumption about the negative and positive elements may seem related to the client’s experience only but, in fact, managed care influences all participants in one way or another. Providers pick the program over personal practice and jobs at the hospital because of the salary’s stability. The implementation of insurance has also affected medical facilities. So, using a couple of perspectives will help to analyze the issue properly.


The benefit of a provider working for an insurance organization is clear – a stable salary. While being an individual practitioner, a specialist may not have enough clients, but the organization will always provide cases. Such a number of patients gives providers stability and confidence in the financial aspect of the job. Unfortunately, the benefit also becomes a reason for the negative aspect of managed care. The provider is paid the same salary for any case, no matter how challenging the task may be. If this was a practicing specialist, his or her payment for a severe issue would be much higher. This leads to many providers keeping their practice going to maintain a higher overall salary.

A large number of clients and small wage also affect the quality of the provider’s job. As said in the study, “Physician productivity declined once those doctors were receiving a steady income, albeit with incentives to enhance volume” (Fox & Kongstvedt, 2015, p. 17). The fact that physicians were already expecting a specific salary worsened their attitude towards a job. Providers had no motivation to treat people better, only to have more clients per day. The number of clients also has influenced the quality of the specialist’s treatment. The large volume of patients results in doctors’ mistakes or lack of interest in the particular case.


Apart from influencing providers, managed care organizations also have affected the workflow of the medical institutions. On the positive side, being obliged to provide service for a specific amount of clients helps some hospitals maintain a steady number of patients. It serves as a needed surge in the volume of work, increasing a rarely-visited hospital’s revenue. In such cases, managed care organizations’ implementation may provide significant support for institutions with low income.

Unfortunately, just as with providers’ stable salary, the program negatively influences other hospitals. While the large number of clients visiting the facility may be beneficial, their insurance reduces the prices for services, making costly operations affordable. This results in a financial loss for hospitals, as their revenue is drastically downgrading. The other way management care is influencing the medical institutions’ income is by making providers work out-of-program. The physicians are unsatisfied with their salary while working in the MOC, so they start their practices. This leads to a decreasing amount of patients in hospitals because they prefer lower prices. It is also important to mention that managed care organizations are employing many practicing specialists so they “would have network physicians who were not employed by a hospital” (Fox & Kongstvedt, 2015, p. 31). This also leads to a decreasing number of potential hospital personnel.


Health insurance is very beneficial for people because they will receive low-cost healthcare. Having confidence in the future and covering possible issues is essential for clients. They also receive many plans to choose from depending on the particular health issues they may experience. The development of personal relationships with a doctor, a feeling of comfort, and protection is what MCOs give their clients, but, as the network grew bigger, most of these benefits disappeared.

The managed care organizations expanded and gained many clients who, unfortunately, decreased service quality. Clients’ information is often hard to find, their treatment suffers because of the doctor’s busyness and lack of concentration. The organizations were often “forbidding its patients to see other physicians in most circumstances” because of contracting in-system specialists (Pinkovskiy, 2020, p. 62). After such instances, COMs faced significant backlash from media, and their response was to increase the prices. This exemplifies the exact issue with health insurance programs that patients disliked so much: coldness and lack of care. Advising on health issues and treating people’s diseases is a serious task that requires a personal connection. At the same time, the implementation of bureaucratic elements led to the loss of any human-to-human connection.

The Provider’s Incentives in Managed Care

As with any profession, medical workers have their specific motives. When specialists participate in personal practice, the incentives are clear. This is different when talking about a provider working in MCOs. A stable salary and constant clients’ flow create a unique set of incentives for an organization’s medical worker. Their main motives are moral and ethical norms, the client’s successful treatment, and doctor’s professional improvement.

The first medical worker’s goal is to put the patient’s health as a top priority, and managed care specialists are not an exception. They are not only helping people solve health issues but also create a closer human connection with clients. The number of patients in MCOs that receive doctor’s support is much more significant than that of a practitioner. One of the leading medical ethical principles goes: “The morally right thing to do is one which produces a greatest good outcome for the greatest number” (Reddy & Mythri, 2016, p. 371). Combining the statement with managed care structure results in healthcare achieving its primary goal.

The second major incentive for MCOs providers’ quality treatment is the client’s satisfaction. Physicians are paid per client, no matter how challenging his or her case may be. This motivates doctors because they want to eliminate the possibility of a severe issue that do not differ in the payment amount. The per-client pay means that the more clients a provider has, the bigger his salary will be. This means that if a client establishes a connection with a doctor and gets the right treatment, they will be willing to come back increasing the number of specialist’s attendants. Although these incentives to make money work as physicians’ main motivational factor, they ultimately improve overall treatment quality.

The third incentive includes additional patients, experience, and financial benefits. As providers work with MCOs, they acquire a possibility not only to work in the system but also to use it as an additional source of experience and income. Increasing the number of clients influences the doctor’s skills and overall image while providing financial benefits and potential clients for personal practice. If the specialist provides quality treatment, they may gain additional knowledge and future patients with an already established emotional connection.

Recommendations on MCO Plans

Medical care organizations are allowing clients to pick one of the different plans: HMO, PPO, POS. They are different in many ways, which means that people can choose the one that fulfills their needs. The main points of interest of any plan are their cost, out-of-system providers’ availability, and the network’s benefits. It is essential to understand the advantages of each plan, and to do that requires a discussion.

Clients will pick the plan according to their needs and financial abilities. A lower-middle-class citizen will be able to select one of these two: POS or HMO. Health Maintenance Organization is a low-cost plan that provides in-system benefits but also has many restrictions. It is the right choice for people with low income but is not suggestible due to its limitations. The Point-of-Service plan costs a little bit more and also gives more flexibility to a person using it. If a person can pick one of these two plans, POS will be the better choice since it provides more options, one of them being out-of-system benefits. HMO is a very restricting plan, but it covers most of the regular citizen’s needs, so it is the right choice for people with low income. The best choice of existing MCO plans is the Preferred Provider Organization, which covers most services. The plan’s cost is its disadvantage, but all the options it gives will make sure a person will have the required healthcare.


Health insurance has been one of the most talked-about topics in recent U.S. history. It has undergone many changes but still arouses discussions trying to solve the system’s main issues. Despite the negative aspects, this system managed to make American healthcare one of the best in the world. In case MCO improves its disadvantages and overall service delivery in the future, it will become flawless system of health care, which will significantly benefit both the country and citizens.


Baranes, E., & Bardey, D. (2015). Competition between health maintenance organizations and nonintegrated health insurance companies in health insurance markets. Health Economics Review, 5(36), 1-9. Web.

Fox, P. D., & Kongstvedt, R. P. (2015). A history of managed health care and health insurance in the United States [PDF document]. Web.

Pinkovskiy, L. M. (2020). The impact of the managed care backlash on health care spending. The RAND Journal of Economics, 51(1), 59-108. Web.

Reddy, M. S., & Mythri, V. S. (2016). Health-care ethics and the free market value system. Indian Journal of Psychological Medicine, 38(5), 371-375. Web.